As in most professions, lawyers speak their own language that is often meaningless to non-lawyers (think, ‘tort’, ‘habeas corpus’ and ‘nunc pro tunc’). Even worse, within the broad category of the law, there are the specialized areas (personal injury, criminal defense, patent law), each of which also has its own lingo. Estate planning attorneys are no different. We use terms such as ‘Personal Representative’, ‘Attorney-in-fact’, and ‘Trustee’ when speaking with our clients without always taking the time to fully explain what those terms mean.
Here’s a primer on some of the more common terms associated with Revocable Living Trusts.
A Trust is an agreement among three parties in which one party entrusts a second party with assets that are to be managed for a third party. A Living Trust is a Trust created by someone during their lifetime and which can be funded with assets during lifetime. The person who creates a Revocable Trust reserves the right to modify the Trust terms at any time and retains access to the Trust assets. While there is such a thing as an oral trust, most Trusts are in writing. A well-written Trust will clearly define the rights and responsibilities of each of the parties to the Trust.
The person who creates a Trust may be called the Grantor, the Donor, the Settlor, the Trustor or even the Trust Maker. This is the person who is entrusting his or her assets to the other party.
The Trustee is the person to whom the assets are entrusted and who accepts the assets and agrees to hold and manage them for the benefit of a third party upon the terms and conditions set out in the Trust. A Trustee is a fiduciary which means that the Trustee owes the highest duty of good faith and fair dealing to the beneficiary.
The Beneficiary is the person for whom the entrusted assets are being held and managed. The benefits which the Beneficiary is entitled to received will be determined by the person who creates the Trust (i.e., the Grantor) and stated in the Trust document. For example, a Grantor may decide that a beneficiary is entitled to receive only the income generated by the assets in the Trust during the beneficiary’s lifetime, and that the Trust assets will be distributed to a different person (the remainder beneficiary) upon the death of the income beneficiary. A Trust may state that a beneficiary is entitled to receive some or all of the principal held by the Trustee at certain times (i.e., when the beneficiary turns 25) or upon the happening of a certain event (i.e., the beneficiary graduates from college). Sometimes a Grantor will grant the Trustee complete discretion to decide if and when and for what reasons distributions may be made to a beneficiary.
Who typically serves in these roles? Well, it is quite common when creating a basic estate planning Trust (a Revocable Living Trust), that the roles of the Grantor, Trustee and Beneficiary are the same person upon the initial creation of the Trust.
Here’s an example of the parties to a typical Revocable Living Trust. Mary Jones creates a Trust she calls the Mary Jones Trust and names herself as the Trustee. During Mary’s lifetime, the Trust assets may be used only for Mary’s benefit. Mary is the Grantor, Trustee and Beneficiary. In her Trust document, Mary names her sister Lily as the successor Trustee.
When Mary become incapacitated, Lily steps into her shoes as Trustee. During Mary’s incapacity, Lily as Trustee, will manage the Trust assets for Mary who is still the beneficiary.
Mary’s Trust states that when she passes away, her children Allison and Barry are the Beneficiaries. Mary is still the grantor of the Trust even when she dies. After Mary’s death, Lily continues to serve as the Trustee for Allison and Barry as Beneficiaries and manages the Trust assets for them in accordance with the instructions in Mary’s Trust.
Don’t let unfamiliar terminology scare you away from creating the plan that is right for you and your family. Consult with an experienced estate planning attorney who will explain complex concepts and specialized terms in an understandable manner, and help you create a plan that reflects your wishes.
If you have questions about creating a Trust or serving as Trustee, please contact us to schedule an appointment with one of our firm’s attorneys.
Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate and trust administration, probate, and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
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